The Economic Dimension of Sport

Original publication: September 2015
Authors: SportsEconAustria: Anna Kleissner, Günther Grohall
Short link to this post: http://bit.ly/2F0THZK
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Overview

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In 2012 the “Study on the Contribution of Sport to Economic Growth and Employment in the European Union” was carried based on the back-then 27 EU Member States focussing on sport as an economic activity. Due to data constraints, the base year for calculations was 2005. The methodology utilised a Multi-Regional Input-Output Table Sport (MRIOT-S) of the Member States based on the 27 national Input-Output Tables Sport (IOT-S). Most of these Input-Output Tables Sport are proxy tables and should therefore be used with caution. They were designed for EU-wide analysis and cannot replace Input-Output Tables Sport produced at national level. The chosen approach is consistent with the National Accounts on the one hand and intra-EU trade on the other.

A satellite account is an extension of the standard national account system. A Sport Satellite Account (SSA) – being the core of an Input-Output Table Sport – filters the National Accounts for sport-relevant activities to extract all sport-related figures while maintaining the structure of the National Accounts. The instrument of SSAs permits all sport-related economic activities to show up explicitly, rather than keeping them concealed, in deeply disaggregated (low-level) classifications of the National Accounts.

Sport’s share in total Gross Value Added

The Vilnius Definition of Sport – an economic definition of sport agreed by the EU Working Group on Sport and Economics in 2007 – distinguishes between a statistical, a narrow and a broad definition of sport as follows:

Statistical Definition: comprised of NACE 92.6 Rev. 1.1 (“Sporting activities”, the only part of the sport sector having its own NACE category).

Narrow Definition: all activities which are inputs to sport (i.e. all goods and services which are necessary for doing sport) plus the Statistical Definition.

Broad Definition: all activities which require sport as an input (i.e. all goods and services which are related to a sport activity but without being necessary for doing sport) plus the Narrow Definition.

The results show that the share of sport-related Gross value added (GVA) of total EU Gross value added is 1.13% for the narrow definition and 1.76% for the broad definition of sport. The share of what is generally known as the organised sport sector (sport clubs, public sport venues, sport event organisers) is reflected in the statistical definition. The share of Gross value added according to the statistical definition is 0.28%. Therefore the real share of sport in terms of production and income is about six times as high as reported in official statistics.

In 2005, sport-related Gross value added (direct effects) amounted to 112.18 bn Euro according to the narrow definition and 173.86 bn Euro with respect to the broad definition. For the statistical definition of sport it was 28.16 bn Euro.

The direct effects of sport, combined with its multiplier (indirect and induced) effects, added up to 2.98% (294.36 bn Euro) of overall Gross value added in the EU.

The highest sport-related value added was found in the sector Recreational, cultural and sporting services, followed by Education services (second), and Hotel and restaurant services (third).

The average Gross value added of the statistical definition shows a broad division between high income Western European Member States and lower income Eastern states. In absolute terms, the Gross value added per capita in the Eastern Member States is around 5 Euro to 10 Euro per capita for this part of the sport industry, while in the higher income states, this amount is around 50 Euro to 100 Euro per capita. Of course it could be expected that richer countries spend more on sport than poorer countries, but this is true not only in an absolute sense but also in a relative sense: the share of Gross value added of sport is lower in low income EU Member States compared to high income states. On a cross-section basis, the national income elasticity of sports is 1.14, which means that if national income rises by 1%, the Gross value added related to sport rises by 1.14%. Both results indicate that the richer the country the higher the share of sport-relevant companies.

Employment effects

For the EU as a whole, the contribution of sport-related employment to total employment is 2.12%. In absolute terms this is equal to 4.46 m employees. This is above the sportrelated share in Gross value added (1.76%), which indicates that sport is labour-intensive.

The largest number of sport-related jobs can be found in Germany, which has 1.15 m sport-related jobs or nearly 27% of all sport-related jobs in the EU. The runner-up is the UK, with more than 610,000, followed by France with more than 410,000 jobs in sport.

Sectoral growth potentials

A general pattern of sport production can be observed in the sense that sport services are predominantly produced for the domestic market while sportswear is predominantly imported. For sports durables internal EU specialisation can be found.

There are three sectors that play a special role in almost all countries: food products and beverages; construction; and supporting and auxiliary transport services including travel agency services. These sectors have strong linkages to the rest of the economy and are therefore strategically important.

Strengths and Weaknesses

Germany has a high ranking in the goods as well as the services sector, with a slightly higher ranking in the goods sector. These high rankings in the goods sector result from, for example, the sports nutrition market and the manufacturing of sports suits. The UK, Ireland, Austria, and Poland have a high ranking in the services sector, but lower rankings in the goods sector (with the exception of the UK). Slovenia and Estonia are similar to Germany in the goods sector, but have a slightly lower ranking in the services sector. Both countries have high rankings for example in manufacturing of sporting equipment.

National Similarities and Differences

Although there are some similarities between the countries, there are also some striking differences. Austria, with its geographical location, is highly tourism oriented, which is especially the case for winter tourism. Cyprus focuses on particular services, like betting, radio, TV, trade and construction, and on education. German consumers show very high private sports-related consumption. In the Netherlands, the consumers focus on practicing sport, visiting sport events, betting on sport events and watching them on TV. Poland has strong services in the area of sport and recreation as well as strong areas like education, trade, transport, manufacturing and construction. In the UK the sport market increased strongly from 2004 to 2008, mainly caused by spending for the London Olympics of 2012, but it was negatively affected by the economic crisis.

The starting point for calculating the MRIOT-S are the 27 national IOTs which serve as a basis for the 27 IOTs-S. The rows correspond to the use of goods. Therefore one can read off the first row how much of Good 1 is used to produce Good 1, Good 2, and Good 3. This is the “intermediated use” of the good, as it is used within the supply chains of the economy. Consumption of final goods are reported the upper right quadrant. The table shows how much of Good 1 (and the other goods below) is consumed by private households, the state, and how much is invested (or put in stock etc.). The last possible use is exports. The sum of intermediate use, consumption and exports equals total demand of a good. This is reported in the far right-hand column. The columns in the left part of the IOT refer to the production of the goods. Thus in the upper part of the first column one can see how much of each good is necessary to produce Good 1. After taxes are added and subsidies subtracted, total intermediate consumption can be read off the table. These were the inputs to production. To transform these inputs into output, capital is required. Gross value added is the sum of all capital costs (machinery, wages, profits, plus taxes). The sum of Gross value added plus total intermediate consumption equals domestic production (“Production Value”, PV) of Good 1. To find out how much of each good is supplied and thus available in a country, add imports to domestic production. As each good which is produced has to be used in one way or another the entries in total demand (right-most column) must be equal to those in total supply (lowest row).

The shaded parts are sportrelated, with the dark shape of the intermediate goods matrix surrounding the non-sport part.

With the 27 expanded and harmonised national Input-Output Tables the multiregional Input-Output Table can be set up. It is a 27-regions and 94-sectors (59 standard CPA divisions + 34 CPA divisions with sport content) model. Below a very simplified version (for a 3 region and 3 sector plus 1 sport sector model) is presented.

Figure 4 shows averages of the rankings in the respective sectors, so that extreme values do not appear, as a country with a value of 27 would have the worst ranking in all goods or service sectors. Being close to the 45 degree line means an equal relative strength/weakness of the goods and service sectors. Being left/above of the 45 degree line means a higher ranking in the goods sectors than in the service sectors and vice versa.

From an economic point of view, sport is an activity which has repercussions in many different areas of the economy.

A list of all products which are considered to be sport related, the Vilnius Definition of sports includes several rules, which guide the classification and interpretation of sports products.

Table 3 highlights the top ten value added sectors in the European Union according to the broad definition of sport. The highest sport-related value added is in the sector Recreational, cultural and sporting services, followed by Education services second, and Hotel and restaurant services ranking third.

According to this categorisation UK, Cyprus, and Malta achieve the highest values within the EU-27. Greece, Germany, Slovenia, Ireland, France, Austria, Italy, Luxembourg, and Poland are also above the EU average of 0.31%. It seems notable that these are mainly countries with high GDP or classical holiday destinations.

The Narrow Definition of Sport comprises everything of 92.6 (Statistical Definition of Sport) plus all goods and services that are needed to do sports, thus all inputs to sport. Values therefore must be higher. The shares of national employment within this definition are more evenly distributed. There is a group of small countries, Luxembourg (3.70%), Austria (3.21%) and Slovenia (2.43%) which rank first, being a result of sport tourism and other sport-related services. Employment in the narrow definition is also in well above the average in Finland, Estonia, and Cyprus. Most other countries achieve an employment share near the EU mean value of 1.49%. Whether Greece, Sweden, and Italy really drop so far back compared to the Statistical Definition of Sport discussed in the above paragraph can only be answered when national IOTs-S are available for them.

The Broad Definition of Sport includes the Narrow Definition of Sport and in addition all goods and services that need sport as an input. This includes the hotel industry, sports medicine, sports journalism, and so on.

The scatterplot shows the correlations between increasing GPD per capita (left to right) and increasing employment in sport-related companies (bottom to top). This is a similar finding as for Gross value added.

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